The Demise Of The Doomsayers Shows How Wrong The Experts Can Be

January 29, 1987|By John Cuniff

NEW YORK — Just a few years ago, you might recall, inflation raged at 13 percent or so, and the prime interest rate was headed to an astounding 21.5 percent.

Those figures accompanied and documented an economic plunge into one of the worst recessions of the century. Spirits plunged even more, evoking from otherwise informed individuals a forecast that things never would be the same.

It was said by housing officials, for example, that people who looked for mortgage rates to return to single digits were indulging in a foolish dream that would span their lifetime and leave them homeless at the end.

And one could not count the number of cynical books, pamphlets, market letters and the like that foretold of ever-rising prices and warned that the only safe course was to buy a gun and a stock of food and head for the hills. Those times, and the attitudes that prevailed, have a special significance now, because both inflation and interest rates not only are back to the single digits but are well within that category and destined to stay there awhile.

Last year, the Labor Department said this week, consumer inflation fell to 1.1 percent, the lowest for any year in the past 25. That rate, in fact, was no higher than some of the monthly increases in 1979, when the CPI rose 13.2 percent.

The prime interest rate, which hit 21.5 percent on Dec. 19, 1980, is now down to 7.5 percent and seemingly anchored there.

And home mortgages, often unavailable in 1980, are now being peddled at rates as low as 8.5 percent.

All this is vivid evidence that even in the darkest days there is hope and that government officials, economists, specialists, ''experts'' and the general public can be very, very wrong about many, many things.

It also poses an intriguing question that might never be answered to everyone's satisfaction.

The question: What do we now make of the all-purpose explanations offered earlier for the recession, inflation and high interest?

The explanations most often given were these: Big government deficits were draining the pool of lendable funds, thwarting private-sector efforts; and oil prices, winding through the economy, were forcing prices higher at each stage. Oil prices did fall. But the federal budget has not been in balance since that terrible scourge of recession, inflation and soaring interest rates.

Curiously, and now that the economy has emerged in spite of it, the budget-balance argument is seldom mentioned except by those with an especially long-range view. Eventually, the latter say, it will haunt us -- but not now. In fact, the threats of recession and of extreme inflation and interest rates are all but completely discounted for this year in most of the popular forecasts.

Prices will rise, according to forecasts, because the falling dollar is likely to push up costs of imports and reduce foreign competition, and because of recent rises in the price of oil. But few foresee inflation beyond 5 percent.

Interest rates are forecast to remain about where they are for most of the year, with a tendency to move higher by the fall but still not precipitously. The forecast for recession sounds about like that of last year: Eventually it will come, but certainly not before the end of the year, if then.

Strangely, those urgent forecasts of impending economic doom arising from big budget imbalances, heard almost daily just five years ago, are a mere distant echo now.

They are recalled, it seems, only by the big budget deficits themselves.